Sunday, May 23, 2010

Commercial foreclosures pick up speed - Phoenix Business Journal

by Jan Buchholz Phoenix Business Journal May 21, 2010

Mesa Financial Plaza, the 17-story office tower that lights up the night sky with a neon-blue silhouette, has been noticed for trustee sale.

The 309,000-square-foot midrise at the southeast corner of Southern Avenue and Alma School Road was built in 1986 by Valley developer Conley Wolfswinkel. It now is owned by BPG Properties Ltd. of Yardley, Pa.

The $40.6 million default is just one of many that are starting to drop in the Valley. The number of defaults for loans of more than $20 million is increasing rapidly for all product types, including office, industrial, retail and large apartment complexes.

Chris Toci, executive director of the capital markets group at Cushman & Wakefield of Arizona Inc., said Phoenix is at the front end of a major crash.

“I have always felt that when the commercial levee breaks, there will be a cascade of properties that drive prices to levels that we have not seen in a very long time, if ever,” Toci said.

He describes himself as a lone voice in the wilderness, given more optimistic prognostications by other brokers. But he said borrowers with loans that are underwater “have thrown in the towel ... and are simply sending the keys back to lenders. The general public is largely unaware of this trend, because it takes so long for these properties to migrate through the system.”

He points to the Viad Tower, the first major office building to go into foreclosure during this real estate bust. The tower, at 1850 N. Central Ave., is considered a signature building for Phoenix with its unique soap-bar shape. Originally, it was the corporate headquarters for the Dial Corp.

Costa Mesa, Calif.-based real estate investment firm McCarthy Cook & Co. went into default on the Viad Tower. It was placed in the hands of a special loan service in March 2009 and is scheduled for a trustee sale May 24.

“This is a classic case of kick the can, hope and copy, and extend and pretend,” Toci said.

Because of the need for approvals from multiple corporate levels and investors, Toci sees the process in a quagmire — and that is only delaying the Valley’s recovery in commercial real estate, he said.

Toci expects it to take at least five years before market fundamentals are anywhere near what they were before the recession.

Two investment brokers with Cassidy Turley/BRE Commercial peg that time frame more in the 18- to 24-month range. Russ Warner and Brent Moser said many commercial transactions financed from 2006-07 were disasters waiting to happen.

“There were a lot of deals that shouldn’t have been done,” said Warner, a former appraiser.

He sees the same stall tactic Toci is observing, but he believes in some cases the delays are a matter of survival for vulnerable banks. If they write down the value of a loan, “that one deal could break the bank.”

By looking at other factors in the market­place, Moser is more optimistic about what’s to come.

“Home builders are making land plays. That’s the first sign of rebounding in the residential market,” he said. “We’re also starting to hear from developers about projects they want to start in late 2011 or 2012.”

As for the Viad Tower hitting the auction block, they both know of multiple parties who are interested in acquiring it.

“Light rail has changed the world, so there is good potential all along Central Avenue,” Moser said.

Mesa’s signature blue-neon midrise may be a harder sell. Although high-profile national companies have leased space there in the past, most of them have moved to Phoenix or Scottsdale.

Still, said Warner, “there will always be tenants who want to be located in Mesa. The rents will equalize, property taxes will go down and it will be sold.”

Both Mesa Financial Plaza and Viad Tower will be sold within a year, Warner predicted.

Wolfswinkel said the Mesa building will be marketable to the right investors.

“It’s a beautiful building, and anyone who owns it knows that,” he said.

It’s also had a long list of owners. Wolfs­winkel lost possession of the property in the late 1980s when the federal Resolution Trust Corp. took it back during the savings-and-loan debacle.

According to Phoenix trade publication Business Real Estate Weekly, the property’s past owners include DMB Associates Inc. in Scottsdale; local investor Dick Lund; Amerivest Properties, a Denver-based company that no longer exists; and Crescent Real Estate Equities Inc. of Fort Worth, Texas.

According to documents from the Maricopa County Recorder’s Office provided by Ion Data, a real estate research company based in Mesa, BPG assumed the $40.6 million loan from Crescent in July 2007. The foreclosure auction is scheduled for Aug. 11 with Don Miner, a partner at law firm Fennemore Craig PC, serving as trustee.

Recent foreclosures
Here’s a sampling of other recent notices of trustee sales filed at the Maricopa County Recorder’s Office with large
commercial properties as collateral:

Sonora Village United Artists
Type: Neighborhood shopping center
Address: 15656 N. Pima Road, Scottsdale
Borrower/owner: Westwood Financial Holdings
Original loan: $28.7 million
Beneficiary: CW Capital Asset Management LLC

Pima Center
Type: Office buildings
Address: Northeast corner of 90th Street and Via de Ventura, Scottsdale
Borrower/owner: PC 101 Inc.
Original loans: $22.8 million and $43.7 million
Beneficiary: Bank of America NA

Empirian on Central
Type: Apartments
Address: 4140 N. Central Ave., Phoenix
Borrower/owner: Empirian on Central LLC
Original loan: $40 million
Beneficiary: Wells Fargo Bank

Ironhorse at Tramonto
Type: Apartments.
Address: 34807 N. 32nd Drive, Phoenix.
Borrower/owner: GS Ironhorse LLC.
Original loan: $32 million.
Beneficiary: RFC CDO 2006 1 Ltd.

Airpark Design Center
Type: Office/retail/warehouse.
Address: 15551 N. Greenway-Hayden Loop, Scottsdale.
Borrower/owner: Loop 76 LLC.
Original loan: $23 million.
Beneficiary: Arizona Regional Real Estate.

Unnamed strip center adjacent to SkySong
Type: Retail.
Address: 7401-7475 E. McDowell Road.
Borrow/owner: PDG Los Arcos LLC.
Original loan: $26 million.
Beneficiary: ML Manager LLC, on behalf of Mortgages Ltd.

Commercial foreclosures pick up speed - Phoenix Business Journal

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